


[No.   18— Secret.] 

SENATE,  January    25th,   1864.— Two  hundred  and  fifty  copies 
ordered  to  be  printed. 

[By  Mr.  Skmmes.1 

.Ex*  .fcU  ir  CD  JrC  X 

r 

OF    THE 

COMMITTEE     ON     FINANCE 


ON  THE   BILL  (H.  R.,  92)    TO    TAX,    FUND,    AND   LIMIT 
THE   CURRENCY, 


The  undersigned,  members  of  the  Finance  Committee,  to  which  was 
referred  a  House  bill  entitled  "An  ace  to  tax,  fund,  and  limit  the 
currency,"  have  had  the  same  under  consideration,  and  beg  leave  to 
submit  the  following  views  in  regard  to  it :  The  subject  is  of  such  va3t 
importance  that  they  cannot  but  be  deeply  impressed  with  a  sense  of 
the  responsibility  of  those  whose  duty  it  is  to  act  upon  it.  The 
finance  questions  which  now  engage  the  attention  of  Congress  and 
the  country  are  surrounded  with  such  difficulties  that  one  might  well 
pause  before  he  offered  a  scheme  as  a  correct  solution  of  so  great  a 
problem,  where  a  mistake  in  regard  to  it  would  be  attended  with  the 
worst  of  consequences.  But,  on  the  other  hand,  the  dangers  of  delay 
are  so  great,  and  the  necessity  for  some  decided  action  so  manifest, 
that  the  undersigned  are  impelled  by  a  sense  of  duty  to  submit  the 
plan  which  they  think  will  be  the  most  likely  to  afford  relief.  They 
can  truly  say  that,  in  their  opinion,  the  disease  has  made  such  pro- 
gress that  none  but  the  boldest  and  most  vigorous  measures  can 
remedy  the  evil.  Before  discussing  these  measures  it  may  be  well  to 
review  briefly  our  financial  history,  that  we  may  use  the  lights  of  our 
paue  experience  to  guide  us  in  the  future.  The  first  attempt  of  the 
0<??srnment  to  convert  its  credit  into  a  currency,  and  %hm  borrow,  to 


a  certain  extent,  without  interest,  was  made  at  the  second  session  of 
Congress  in  Montgomery.  Alabama.  By  the  act  of  May  6th,  1861, 
provision  was  made  for  a  loan  of  $50,<M>0JOIM>  on  bonds  bearing  eight 
per  cent,  interest  and  for  the  is-ue  of  twenty  millions  of  treasury 
notes,  without  interest,  payable  after  the  war,  and  receivable  in  pay- 
ment of  public  dues.  These  notes  were  fundable  at  the  pleasure  of 
the  holder  in  eight  per  cent,  bonds,  which  were  reconvertible  into  like 
notes  whenever  he  might  desire  to  do  so.  Upon  the  theory  of  this 
system  of  finance  the  currency  was  to  be  self- regulating  in  regard  to 
an  undue  expansion  or  contraction  by  adjusting  itself  to  the  level  of  a 
bond  paying  eight  per  cent,  interest  in  specie.  If  such  a  bond  was 
worth  par  or  nearly  par  in  specie,  then  the  currency  could  not  fall 
much  below  that  value  by  exs  ansion,  or  rise  much  above  it  by  con- 
traction. For  in  the  one  case  the  surplus  would  be  funded  by  the 
operation  of  individual  interest,  and  in  the  other  the  equilibrium 
would  be  restored  by  a  reconversion  of  a  portion  of  the  bonds  into 
notes.  But  to  susain  such  a  scheme  of  currency  the  payment  of  the 
interest  upon  the  bond  in  specie  wa<  indi«pensable.  When,  there- 
fore, it  became  obv?ous  that  this  could  not  be  done  and  that  war  on  a 
great  scale  was  to  be  ma  ntaine  1  chiefly  by  th-  u->e  of  public  credit, 
it  ought  to  have  been  understood  that  the  self-regulating  feature  of 
this  system  was  I  ><t  .  nd  that  the  necessity  had  arisen  to  place  the 
finances  upon  a  different  found  »iion 

Undoubtedly  the  issue  of  Treasury  nofes  ou^ht  to  have  been  then 
restrained  within  limit:-  fixed  by  law  and  in  such  a  manner  lhat  fha 
currency  could  not  have  be  n  inflated  to  an  unduo  extent.  This  being 
lone,  the  Government  should  have  resorted  to  taxation  an  1  the  sale  of 
bonds  for  the  means  of  meeting  its  expenditure  ft  woul  have  been 
far  better  to  have  submitted  to  such  a  discount  as  would  have  been 
made  upon  the  bond,  than  to  have  inflated  the  standard  of  value  to 
such  an  e>t  nt  as  to  force  the  Government  to  incur  a  debt  f>r  three- 
fold the  value  received  and  to  threaten  with  ruin  both  public  and  pri- 
vate cre<  it.  Nor  was  this  all  ;  for  this  currency,  constantly  expanding 
in  volume,  lost  some  of  the  most  essential  attiibures  of  a  standard  of 
value,  because  it  was  constantly  changing  A  standard  of  value, 
although  nominally  greatly  beyond  the  specie  stand  rd,  might  s-ill  be 
used  as  a  true  measure  il  l  bore  s  constant  proportion  to  the  precious 
metals.  Such  a  standard  would  be  inconvenient  enough;  but  still  it 
would  measure  values  as  rated  in  specie,  which  is  the  general  stan- 
dard of  the  world.  But  in  our  case  the  volume  of  currency  was  con- 
stantly increasing  and  men  were  tempted  to  refuse  to  sell  to-day 
because  they  were  sure  of  a  higher  price  to-morrow.  Some  efforts 
were  made  by  Congress  to  prevent  this  evil  in  the  law  of  Sept  23d, 
1862,  which  provided  for  an  alternative  issue  of  bonds  or  of  treasury 
notes,  and  allowed  the  Secretary  of  the  Treasury  to  put  forth  either 
in  his  discretion.  This  law  required  the  bonds  to  be  used  in  prefer- 
ence to  the  notes  where  it  could  be  done,  and,  in  effect,  authorized  the 
Secretary  to  sell  them  below  par.  But  the  law  itself  was  defective  in 
Dot  imposing  a  positive  restriction  upon  the  amount  of  treasury  notes 
to  be  issued.     Without  this  protective  power,  of  the  law,  it  was,  per- 

IK 

HOI 


\ 


haps,  impossible  for  the  Secretary  to  have  resisted  the  pressure  for  tho 
note,  which  was  the  more  convenient  form  of  credit.  At  that  day  it 
is  doubtful  whether  public  opinion  would  have  sustained  him  in  sub- 
mitting to  the  necessary  discount  had  he  sold  them  for  treasury  notes. 
Few  will  now  doubt  but  that  such  ought  to  have  b^on  t*ie  policy  pre- 
scribed «  y  the  law  itself.  But  the  opposite  opinion  prevailed  at  the 
time  and  treasury  notes  were  al  ow-d  to  be  issu  •<!  until  he  amount  be- 
came so  enormous  that,  ('ong  ess  Felt  itself  cor.straine  1  at  the  last  sessi  n 
to  seek  some  means  for  absorbing  the  ex-ess  beyond  the  amount 
necessary  to  sftjh  ly  the  true  currency  wants  of  tne  country.  A  liw 
was  passed  to  c.  nstrain  the  holders  o?  the  notes  to  place  a  [)ortioa  of 
them  in  bonds  by  curtailing  i.h<i  funding  priul  g@  after  a  certain 
period,  But,  to  provide  a  more  efficacious  av»orbjnt,  the  Secretary  of 
the  Treasury  w  is  autho  iz  -d  to  is.-ue  $25  ',  U!),(Hi;l  in>bonds,  whose 
interest,  at  the  rat*  of  six  per  cent,  per  anna  n,  was  payable 
i*;  specie  or  in  cotton  at  six  pen ee  sterling  p-c  p  uind.  W  re  was 
good  reason  at  that  time  to  suppose  that  suc'H  a,  bond  would  s  11  Well 
in  foreign  markets,  and  with  the  sterling  exchange  thus  procurable  it 
was  hoped  that  the  treasury  notes  could  be  purchased  to  a  large 
extent,  for  they  then  stood  as  eight  or  ten  to  one  in  specie.  But 
unfounnately  the  military  reverses  of  the  last  year  so  impaired  our 
ciedit  abroad  as  to  destroy  this  well-four  de .:  expectation,  and  now  we 
have  to  look  to  come  other  plan  for  relief,  if  indeed,  relief  be  practi- 
cable. That  it  is  practicable,  the -undersigned  believe;  but,  in  their 
opinion,  it  can  only  be  had  by  prompt,  vigorous  and  radical  measures, 
3Ve  must  strike  at  ihe  root  of  the  evil,  ^for  to  apply  pillLuives  now 
will  be  to  aggravate  its  distress,  through  the  very  means  which  aie 
used  to  postpone  the  final  hour  of  the  system  now  in  existence. 
Before,  however,  discussing  the  plan  which  is  offerred,  it  is  but  just 
to  those  who  have  to  deal  wuh  this  subject  practically  to  say  that  no 
scheme  of  finance  car.  be  maintained  in  the  face  of  serious  miliary 
reverses.  For,  after  all.  public  credit  depends  as  much  upon  the  sword 
of  the  soldier  who  defends  the  country  as  t;pon  the  pen  of  the  law- 
giver who  regulates  its  form  and  character.  Nor  are  these  the  only 
considerations  independent  of  the  system  itself,  which  affect  its  suc- 
cessful operation 

Public  credit  rests,  at  last,  upon  the  native  resources  of  a  country,  and 
the  prospect  of  their  proper  development.  In  the  former  we  are  rich 
enough  for  all  the  possible  demands  to  be  made  upon  them ;  but  in  regard 
to  the  latter,  it  is  to  be  doubted  whether  we  have  not  too  much  neg- 
lected cur  industrial  system  in  our  almost  exclusive  attention  to  the 
military  wants  of  the  country.  But  whether  we  look  to  the  indus- 
trial or  the  military  system,  we  shall  find  a  reform  in  the  currency  to 
be  an  almost  indispensable  condition  of  success.  In  the  first  place, 
we  must  so  fix  our  currency  as  to  make  it  a  standard  by  which  men 
may  measure  the  value  of  their  contracts  with  the  Government  and 
each  other.  Secondly,  we  must  bring  that  currency  within  such 
limits  as  will  make  it  so  near  to  the  specie  standard,  that  debts  con- 
tracted upon  such  a  measure  of  value  can  be  paid,  hereafter,  in  gold 
or  silver,  according  to  the  promise  that  has  been  given  ;  and  thirdly, 
• 


we  must  endeavor  to  attain  these  ends  by  means  which  will  operate 
upon  all  as  equally  and  fairly  as  possible.  In  studying  this  great 
problem,  we  must  look,  not  only  to  the  amount,  but  to  tho  character 
of  our  debt,  as  possibly  in  the  latter  we  may  find  the  key  to  its  solu- 
tion. Our  interest-bearing  debt  is  about  $400,000,000,,  of  which 
$102,000,000  consists  of  treasury  notes,  and  the  residue  of  bonds. 
Our  non-interesfc-bearing  debt,  which  now  constitutes  the  currency  of 
the  country,  will  probably  amount  to  $790,000,000  on  the  1st  cf 
April,  1864  In  this  estimate,  no  allowance  is  made  for  notes  which 
have  been  lost  or  destroyed — a  sum  which  necessarily  must  have  been 
large,  and  which  may  possibly  amount  to  $50,000,000. 

This  currency,  as  compared  with  that  of  the  Confederate  States 
when  the  war  broke  out,  is,  probably,  now  worth   about  twenty-five 
cents  in  the  dollar,  upon  a  contrast  of  the  prices,  at  the  two  periods, 
of  such  articles  as  are  not  much  affected  by  scarcity  or  peculiar  cir- 
cumstances.    Such,  at  least,  is  the   opinion  of  persons  who  have  a 
practical  acquaintance  with   the  subject,  and  who  were   consulted  by 
the  undersigned.     None  supposed  that  prices  hid  not  been  enhanced 
more  than  three-fold  when  estimated  in  the  present  currency.     This 
value  of  the  tresaury  note  is  daily  diminishing,  because  the  Govern- 
ment is  issuing  fifty  milions  of  such  notes  in  every  month.     Its  char- 
acter, as  a  standard  of  value,  is  fast  being  destroyed,  and  unless  some- 
thing is  done,  they  will  not  only  become  utterly  worthless,  before  very 
long,  but  they  will  involve  us  in  a  bonded  debt  so  large  in  its  nominal 
amount,  that  we  shall  bo  unable  to  pay  it  when  it  shall  have  reached 
its    final    dimensions      All,  then,  will    probablj    agree  that   nothing 
could  be  worse  fcjja.fi  to  leave  the  pre  ent  system  in  operation.     But 
some  who  are  of  opinion  that  we  should  disturb  none  of  the  promises 
on   the    face    of  the  note,  propose  that  we  should   leave  the  present 
amount  of  treasury  notes  outstanding,  and  issue  no  more.     The  effect 
of  this  would  be,  that  both  the  Government  and  private   individuals 
would  contract  debt  upon  a  scale  which  would  require  them  to  pay 
four    dollars    in  value  for   every  one  received.     When  we  remember 
that  the  Secretary  estimates  our  annual  expenditures,  upon  the  pres- 
ent standarl  of  value,  at  about  $1,427,000,0110,  we  can  easily  reckon 
the  liabilities  probably  to  be  incurred   in  the  course  of  tw3  or  three 
years  of  war.     For  it  is  preposterous  to  suppose  that  such  a  war  as 
that   in  which  we  are  now  engaged  can  be  conducted  upon   taxation 
alone.     On  the  contrary,  we  must  depend  mainly  upon  credit  for  the 
means  of  prosecuting  it.     Can  any  man  doubt  but  that  such  a  scheme 
would  result,  either  in  repudiation  of  the  whole  debt,  or  else  in  scaling 
it  according  to  the  specie  values  received  in  exchange  for  it.     There 
is  still  another  plan  which  it  may  be  well  to  examine  before  proceed- 
ing to  an  analysis  of  the  House  bill.     That  scheme  was  proposed 
ui  the  authority    of  the  bankers'   convention,  and   still    has  its  ad- 
vocates.    It  proposes  to  issue  one  thousand  millions  of  bonds,  bearing 
interest  at  the  rate  of  six  per  cent,  per  annum,  and  with  coupons  at- 
tached, to    be  payable    in    specie.     A  tax  is    to  be   laid  to  bring  in 
^(>o,u()i),0i)0,  which  is  to  be  payable  in  specie  or  in  these  coupons, 
&ad  these  bonds,  which  would  be  worth  all  that  they  represented  on 


their  face,  in  specie,  are  to  be  exchanged  at  par  for  treasury  notes, 
which  cost  their  holders  not  more  than  twenty-five  cents  in  the  dollar. 
This  tax  of  $60,000,000,  in  specie,  would  -  be  equivalent  to  one  of 
$1,200,000,000  in  treasury  notes,  at  the  present  period.  This  tax 
must  be  paid  in  addition  to  what  is  to  be  received  for  the  expenses  of 
the  counties,  the  cities,  and  of  the  States,  and  for  the  maintenance  of 
the  Confederate  Government,  and  the  prosecution  of  the  war.  Would 
it  be  possible  to  do  this  without  bringing  a  large  portion  of  the  prop- 
erty of  the  country  to  the  hammer,  and  spreading  ruin  and  disaster 
throughout  the  land?  And  .to  whom  would  this  property  be  trans- 
ferred ?  To  those  having  funds  abroad,  upon  which  they  could  draw, 
and  to  the  holders  of  those  bonds  whose  coupons  were  made  equal  to 
specie  by  law.  It  is  difficult  to  estimate  the  extent  to  which  the 
property  of  the  country  would  be  transferred  to  its  monied  men  under 
such  a  scheme  as  this.  These  objections  are  applicable,  in  some  de- 
gree, to  all  the  plans  which  propose  to  lay  a  tax,  payable  in  specie. 
Such  a  tax  imposes  a  much  greater  burthen  upon  the  people  than  it 
would  seem  to  do  at  first  sight  If  it  be  true  that  prices  not  effected  by 
the  scarcity  of  the  articles  for  which  they  are  paid,  are  now  four 
,  times  as  great,  when  estimate  ted  in  treasury  notes,  as  when  reckoned 
in  specie  in  186  J  ;  and  if  one  dollar  in  treasury  notes  is  now  worth 
only  four  cents  in  specie,  then  specie  is  five  times  as  valuable  now,  in 
the  Confederate  States,  as  it  was  in  186!.  A  result  which  is  not  im- 
possible, startling  as  it  may  seem  at  first  view.  When  trade  is  open 
with  the  world,  the  value  of  specie  is  nearly  equal  in  all  places  be- 
tween which  there  is  a  free  exchange  of  com  uodities.  Bat  when  a 
country  is  closely  blockaded,  and  cannot  export  its  products  freely  in 
exchange  for  specie,  that  article  may  become  of  greater  value  there,  on 
account  of  its  scarcity,  than  it  bears  in  the  rest  of  the  world 

Having  now  discussed  some  of  the  prominent  plans  proposed  for 
the  public  relief  in  the  present  diseased  condition  of  the  currency, 
the  undersigned  beg  leave  to  submit  their  views  in  regard  to  the  bill 
of  the  House  referred  to  the  Committee  on  Finance  for  consideration. 
That  bill  proposes  to  allow  the  notes  to  be  funded  according  to  the 
provisions  of  existing  laws  until  the  1st  of  April  next,  and  after  that, 
in  five  per  cent,  bonds  at  par,  until  the  1st  of  June,  and  at  seventy- 
live  cents,  fifty  cents,  twenty-five  cents,  and  ten  cents  in  the  dollar 
upon  the  first  day  of  each  successive  month  up  to  October,  after 
which  period,  the  note  is  to  be  deprived  of  all  value  and  perish,  as  it 
were,  in  the  hands  of  the  holder.  But  these  notes  are  always  to  be 
receivable  in  payment  of  the  taxes  of  1864,  provided  they  are  paid  in 
certificates  representing  them,  in  sums  of  not  more  than  one  hundred 
dollars  ;  and,  as  there  is  no  limit  of  time  as  to  the  issue  of  these  cer- 
tificates, it  may  be  said  that  the  tax  of  1864  is  always  payable  in  the 
notes  which  they  represent.  In  addition  to  these  old  notes,  the, Sec- 
retary of  the  ■  Treasury  is  to  issue  new  notes  to  the  amount  of 
two  hundred  million  of  dollars.  It  is  difficult  to  foresee  what  is  to  be 
the  precise  effect  of  these  complicated  provisions.  If  we  are  to  judge 
by  our  past  experience,  the  amount  funded  by  the  1st  of  April  will 
be  comparatively  small,  and  those  which,  igre  outstanding  will  scarcely 


be  placed  at  a  depreciated  rate  in  a  four  per  cent,  stock  so  long  aci  the 
holders  hope  to  pass  them  at  par  in  tH'e  payment  of  taxes.  If  so,  a 
large  amount  of  these  noUs  will  circulate  along  with*  the  two  hundred 
millions  cf  new  notes  for  a  great  portion  of  the  year,  during  which 
ve  shall  suffer  all  the  evils  now  experienced  from  art  inflated  currency* 
Such  of  the  notes  as  are  not  paid  for  taxes  or  funded  will  perish  in 
the  hari(3s  of  the  holders,  and  the  law  will  he  f.nind  to  worH  so 
unequally  as  between  those  who  get  a  good  bond  in  exchange  for 
them,  or  who  receive  payment  at  par  for  ihem,  and  those  who  gvt 
nothing,  th.it  the  ! utter  will  raise  such  a  •••bun  .r  f  >r  relief  fr-  ni  Con- 
gress as  probably  to  cr  ate  the  ne  essity  for  new  legislation  upon  the 
subject.  If,  on  the  other  hand,  the  bill  should  work  as  «eeitH  to  have 
been  expected,  and  a  larg  •  amount  of  these"  notes  shoul  I  be  ibs'o  h.-d 
in  bonds  and  taxe-t.  then  the  numbers  of  the  class  thus  inj  1- 
riously  affected,  will  be  diminished;  b  it  the  p  ople  wi  i  he  exhausted 
by  the  payment  of  an  onerous  tax  for  no  other  pu  pose  than  todis-  harge 
at  par  old  liabilities  and  satisfy  the  class  of  puHic  ciedi'ors -who  h'«V;e 
given  bonds  in  ex  hange  t  >r  th  securities  which  thev  hold  H  iving 
thus  us*d  up  the  resources  from  taxation,  the  Govern  n-ent  wou  d  bo 
foiced  to  resort  to  its  credit  in  the  forms  of  new  treasury  notes  :tnd 
of  boi.ds.  The  new  deb%  thus  created,  would  probably  be  greater 
than  the  amount  of  the  old  pail  off  in  this  process  of  heavy  taxation. 
If  the  provision  for  receiving  these  old  notes  in  payment  of  taxes 
should  be  repealed  to  avoid  the  difficulty  just  adverted  to,  then  the 
amount  of  notes  which  would  perish  in  the  hands  of  the  holders  would 
be  so  great  that  new  legislation  would  become  necessary  to  remedy 
the  gross  inequalities  in  the  operation  of  the  law.  It  is  to  be  observed 
that  all  the  schemes  which  propose  to  remedy  the  existing  evi>s 
involve  repudiation  in  some  form.  The  bankers'  scheme  proposes  to 
repudiate  the  promise  to  receive  the  notes  in  payment  of  all  public 
dues,  except  the  export  duty  upon  cotton.  That  of  the  Secretary  of 
the  Treasury  proposes,  after  a  short  time,  to  repudiate  the  promises 
to  fund  and  receive  them.  The  scheme  of  the  House  repudiates  all 
the  promises  specified  in  the  note  after  the  first  of  October.  Indeed, 
it  is  difficult  to  see  how  any  scheme  can  remedy  the  evil  if  the  literal 
performance  of  every  promise  is  required. 

If  things  are  left  as  they  are  to  avoid  an  apparent  breach  of  promise, 
it  has  been  shown,  as  we  think,  that  the  result  will  be  an  utter  de- 
struction of  the  value  not  only  of  our  treasury  notes  but  also  of  our 
bonds.  If,  then,  the  occasion  has  arisen  when  we  must  sacrifice  the 
letter  of  the  promise  to  ensure  a  substantial  compliance  with  it,  or 
even  if  the  time  has  arrived  when  we  must  choose  between  a  partial 
and  a  total  failure  to  meet  our  obligations,  there  ought  to  be  no  hesi- 
tation in  taking  the  necessary  steps  to  secure,  at  least,  a  partial  per- 
formance of  our  contract.  But  happily  for  us,  as  we  believe  there 
is  a  mode  of  relief  by  which  we  may  comply  substantially,  with  our 
promises  and  save  the  public  creditor  from  any  loss,  in  his  dealings 
with  us.  As  has  been  said  already,  the  key  to  the  solution  of  this 
problem,  may  be  fouad  in  Ihe  character  of  our  debt.  On  the  first  of 
April  next,  we  shall  owe  aijfcbut  seven  hundred  and  forty  millions 


of  dollars  in  treasury  notes,  which  bear  no  interest.  These  notes 
constitute  nearly  the  entire  currency  of  the  country.  The  value  of 
this  currency  consists  mainly  in  its  purchasing  power,  which  depends 
upon  its  convertibility  into  such  objects  of  human  desire  as  are  usually 
bought  and  sold.  If  this  currency  be  receivable  in  payment  of  debts, 
then  the  value  of  its  dollar  is  measured  by  the  proportion  of  its 
amount  to  that  of  the  average  daily  exchanges,  which  are  made 
in  money.  If  six  hundred  millions  and  two  hundred  millions  in 
currency  will  each  effect  the  same  average  amount  of  daily  exchanges, 
then  the  two  are  equal  in  value,  provided  each  constitutes  the  whole 
currency  of  the  country  at  the  time  of  their  respective  issue,  and 
then  a  dollar  of  the  last  currency  is  worth  three  dollars  in  the  other, 
because  of  the  different  proportions  which  the  two  currencies  bear  to 
the  exchanges.  In  this  case,  the  purchasing  powers  of  the  one  and 
of  the  three  dollars  are  precisely  equal.  The  conditions  of  this  equality 
are  that  each  shall  constitute  the  entire  currency  ot  the  country,  and 
be  adequate  to  the  transact  on  of  its  daily  exchanges,  at  the  times  of 
their  respective  issues,  and  that  they  should  be  receivable  in  pay- 
ment of  debts.  Upon  these  conditions,  this  equality  remains,  whether 
you  add  or  substraet  the  promise  to  pay  at  a  distant  period  If  then, 
there  should  be  seven  hundred  and  f»rty  millions  of  d  liars  in  treasury 
ii  »tes  outstanding  on  ihe  first  of  April  next;  and  if  a  tax  of  two 
thirds  of  the  n  unmal  amount  should  be  levied  on  each  note,  to  be 
deducted  from  iis  Y.n-e,  the  eurr-  ncy  wouN  then  consist  of  one  third 
of  the  former  amount,  or  of  two  hundred  an  I  forty-six  millions,  in 
roun J  numbers,  and  the  oiiq  third  would  be  equal  in  value  to  the 
whole,  because  the  two  would  be  equal  in  their  purchasing  powers; 
for  each  woub!  c  institute  the  entire  currency  of  the  country  ;  each 
would  be  a  lequ.ite  to  its  exchanges  and  each  would  be  receivable  in 
the  payment  of  debts  inasmuch  as  rhe  peopk  would  take  as  money 
whatever  was  received  by  the  Government  and  the  banks.  Ic  can  be 
shown  that  such  an  opera  ion  as  ihi-t,  i*»  substantially  no  violation  of 
the  proinist  s  of  the  Government.  It  inflicts  no  injury  upon  the  note- 
holder, because  it  falls  upon  all  in  a  like  proportion,  and  leaves  him 
the  same  purehis-iug  powei  that  h  ha  1  before  It  does  not  diminish 
the  value  of  h:s  fanning  privilege,  because,  if  the  principal  sum  is 
reduced  to  a  third,  the  in  cereal  is  enhanced  th'-ee  fold  by  the  medium 
in  which  it  is  pud.  Six  per  cent,  on  one  hundred  dollars  in  the  new 
notes  is  equal  in  value  to  six  per  cent,  on  three  hundred  dollars  when 
paid  >n  the  old,  because  the  new  note  is  worth  three  j;irnes  as  much  as 
the  old;  nor  is  the  promise  to  renew  the  n  >te  violated  to  the  injury 
of  the  holder.  What  matters  it  to  the  tax-payer  whether  you  assess 
his  property  at  one  third  of  its  value  in  old  notes,  and  receive  them 
at  one  third  of  their  nominal  value,  or  whether  you  treble  the  assess- 
ment and  take  the  note  at  its  face.  Bat  it  may  be  said  that  you  vio- 
late the  promise  to  pay  the  whole,  when  you  pay  only  one  third  of 
the  amount.  But  if  the  note  holder  can  convert  his  note  the  day 
after  the  operation,  into  the  same  value  in  commodities  which  it  would 
have  commanded  the  day  before,  he  is  not  really  injured,  inasmuch 
as  he  has  his  remedy  in  his  own  hands  ;  and  such  undoubtedly  would 


8 

be  the  case,  if  the  views  already  presented  are  correct.     Let  it  be 
supposed,  however,  for  argument's  sake,  that  the  scheme  recommended 
by  the  Fioance  Committee  does  reduce  the  value  of  all  these  promises 
to  one  third  of  their  nominal  amount,  it  still  remains   true  that  the 
holder  will  receive  more  forhis  note  than  he  gave  in  exchange  for  it.  For, 
as  a  general  rule,  the  cost  of  that  to  the  holder  was  not  more  than  twenty- 
five  cents  in  the  dollar.     Of  course  there  are  exceptions,  as  in.  the 
case  of  persons  receiving  these  notes  for  salaries  or  for  the  principal 
or  interest  of  debts  contracted  before  the  war.     But,  as  a  general  rule, 
the  proposition  ju*t  state  I  may  be  taken  to  be  true.   If  these  two  propo- 
sitions be  true,  the  holder  who  receives  thirty-three  and  a  third  cents 
only  in  the  dollar  for  hi-*  note,  obtains  nearly  forty  per  cent,   more 
than  he  gave  for  it,  and  is  benefited  instead  of  being  injured  by  hie 
transaction  in  Government  paper.     But  in  point  of  fact  the  note  has 
been  reduced  to  twenty-five  cents  in  the  dollar  by   taxation,  and  the 
people  have  puid  the  tax  of  seventy-five  per  cent,  on  its  value  before 
ic  reached  the  present  holder.     To  test  the  truth   of  this  proposition, 
let  it  be  suppoed  that the  currency    of  a  country  consisted   of   one 
hundred  millions  dollars  in  treasury    not<-s,    which    were    eonveztible 
into  npecie  at  par,  and  were  sufficient  for  the  demands  of  circulation  ; 
if,  then,  the  Government  should  isnue  another  one  hundred  millions  of 
dollars  in  treasury  notes,  this  hew  issue  would  operate  as  a  tax  of  fifty 
peV  cent,  on  the  holders  of  the  existing  currency  ;  for,  if  a  bushel  of 
wheat  brought  one  dollar  before,  it  will  now  bring  two.    Of  course  this 
supposition  presumes  that  the  ratio  of  supply  and  demand  for  wheat 
remained   the  same  and   that  the  currency  constitutes  the  only  vari- 
able element  of  price.      To  carry  out  the  illustration  still  further,  let 
it  be  supposed  that  in  a  succeeding  year,   the  Government   issuer  in 
addition  to  the  two  hundred  millions  of  dollars  of  the  then  currency 
as  much    more  ;    the  dollar  is  now   reduced   to  twenty- five  cents  in 
value    as    compared    with    specie,    for    four   dollars    are    required 
to  buy  a  bushel  of  wheat.     The  last  issue,   of  course,    operated   as  a 
tax  or  fifty   per  cent,  on  the   two   hundred  millions   of  dollars  then 
outstanding,  for  it  diminished  the  value    of  that    currency    one  half. 
Now  clearly  the  first  of  these  taxes    was    raid    by  the  owners  of  the 
one  hundred  millions    of  dollars    of  notes,    and    the    second    by    the 
owners  of  the  two  hundred  millions  of  dollars  in  currency. 

It  is  also  manifest  that  the  last  holder  of  the  note,  who  sold  his 
bushel  of  wheat  for  four  dollars,  bore  none  of  this  burthen  The  tax 
itself  was  the  result  of  the  issue  of  new  paper  by  the  Government, 
and  issued  according  to  a  right  which  nobody  has  ever  doubted.  That 
the  imposition  of  this  indirect  tax  is  impolitic  few  will  dispute  ;  but 
that  there  is  no  repudiation  in  the  exercise  of  such  a  right,  will  also 
be  generally  admitted.  But  if  these  repeated  issues  did  involve  a 
repudiation  of  existing  obligations,  how  is  the  wrong  to  be  remedied  ? 
Not  by  giving  the  man  who  sold  his  bushel  of  wheat  for  four  dollars, 
a  hundred  Cents  for  every  dollar  of  his  note.  To  give  him  seventy- 
five  cents,  mere  in  the  doJiir  that  he  paid  for  it,  would  be  to  tax 
again  those  who  had  already  paid  a  tax  of  seventy-five  per  cent, 
on  the  note  in    order  to  raise   a   like  amount  &   seeond  time  for  the 


benefit  of  him  who  had  borne  none  of  the  burthen.  The  injustice 
ot  such  a  proceeding  is  so  obvious  as  to  need  no  illustration. 
3f  any  body  is  entitled  to  a  return  of  this  tax  on  the  part  of  the 
Govemuunt,  it  is  the  man  who  paid  it.  But  that  person  can 
neither  be  ascertained  nor  reached,  as  the  payment  was  made  by  the 
insensible  process  of  exchange,  as  the  note  was  used  in  the  thousand 
transactions  of  purchase  and  sale  between  individuals.  Seventy-five 
cents  on  the  dollar  have  already  been  paid  by  the  people,  not  through 
their  government  it  is  true,  but  in  their  individual  capacities,  and 
when  the  rem  ii;.ing  twenty-five  cents  due  on  the  dollar  are  paid,  the 
entile  obligation  is  discharged.  It  is  strange  that  the  tax  laid  upon 
the  note  holder  by  the  issue  of  new  notes,  and  which  is  really  bur- 
thensome  and  oppressive  to  him.  is  never  objected  to  as  unjust  or  a 
bieach  of  promise,  whi^t  the  far  lighter  imposition  of  taking  a  part 
of  the  notes  themselves,  and  thus  diminishing  the  currency,  is  charged 
with  the  sin  of  repudiation. 

To  contrast  the  two  operations,  let  it  be  supposed  in  the  case  stated 
above,  tl.at  the  Government,  instead  of  taxing  the  $2<H),  IK), 000  in 
curren*  y  fifty  per  cent.,  by  issuing  as  much  more,  had  laid  the  same  tax 
by  taking  half  or  one  hundred  millions  of  the  notes  which  were  to  be 
destroyed  when  received  The  holders  of  the  remaining  notes  would 
be  as  well  off  as  before,  because  they  would  still  hold  the  entire  cur- 
rency of  the  country,  and  they  could  buy  as  much  with  the  part  as 
with  the  whole.  The  bushel  of  wheat  which  he  bought  with  two 
dollars  before,  he  now  purchases  with  one.  But  it  may  be  said,  is  this 
theory  true,  no  matter  how  great  the  reduction — would  the  holder 
have  been  as  well  off  if  the  amount  of  currency  had  been  reduced  to 
$50,000,000?  Clearly  not;  for  the  $50,1)00, 0U0  would,  upon  sup- 
position, be  insufficient  for  the  exchanges  of  the  country,  and  the 
Government  would  issue  as  much  more.  The  original  holders  would 
then  own,  not  all,  but  half  of  the  currency,  and  thus  hare  but  half 
of  the  purchasing  power  which  they  formerly  possessed.  To  state 
the  proposition  briefly,  if  we  tax  the  notes  by  diminishing  their 
amount  we  appreciate  their  value;  but  if  we  tax  them  indirectly  by 
new  issues  we  depreciate  the  va'ue  of  the  note.  Why.  then,  should 
this  latter  be  preferred  to  the  former  method  ?  But  if  we  consider 
the  nature  of  currency,  and  the  circumstances  under  which  it  is 
taxed,  we  may  fairly  assert  that  a  tax  of  sixty-six  and  two  thirds  per 
cent,  upon  the  note,  to  be  deducted  from  its  face,  does  not  impose  as 
great  a  burthen  upon  the  holder  as  a  tax  of  five  per  cent,  upon  real 
estate  which  yields  not  more  than  foui  per  cent,  income.  When  the 
per  cen'urn  of  taxation  is  so  much  greater  on  the  note  than  on  other 
property,  one  in  apt  to  suppose  that  the  form  of  taxation  is  assumed 
to  disguise  an  actual  tepudiation  of  a  part  of  the  promise.  And  yet 
such  a  view  of  the  question  in  this  case  might  be  grossly  fallacious. 
Equality  of  taxation,  in  its  just  sense,  consists  in  imposing  equal 
buithens  on  individuals  and  classes,  and  not  in  exacting  equal  pro- 
portions  of  their  property  in  the  form  of  taxes. 

Governments  generally  lay  a  larger  duty  upon  distilled  spirits  than 
upon  other  articles ;   but  the  burthen  laid  upon  the  producer  is  not 


10 

greater  than  that  upon  others,  as  lie  can  make  a  corresponding  increase 
of  price,  owing  to  the  more  active  demand  for  what  he  manufactures  ; 
so  most  tariffs  impose  higher  duties  upon  luxuries  than  upon  necessa- 
ries ;  and  here,  too,  the  burthens  may  be  equal,  because  the  rich  can 
afford  to  pay  these  high  duties,  and  after  having  done  so,  will  be  not 
more  inconvenienced  than  the  masses  who  pay  lower  duties  upon  the 
cheaper  articles  of  consumption.  So1,  too,  the  rate  of  taxation  upon 
land  is  generally  less  than  upon  personal  property,  because  the  per 
centum  of  income  from  the  former  is  generally  less.  If,  then,  the 
propsoed  tax  upon  the  treasury  note  will  burthen  the  holder  no  more 
han  the  proposed  tax  of  five  per  cent  upon  land  will  burthen  its  own- 
isr,  the  former  tax  may  be  considered  as  fairly  laid  For  if  the  land- 
owner paya  five  per  cent  on  land  which  yields  him  but  four,  he  will 
be  forced  to  sell  a  part,  of  his  principal,  and  when' the  operation  is 
over  he  will  not  be  able  to  buy  as  much  with  his  property  as  he  could 
before.  But  the  note-holder,  after  deducting  sixty-six  and  two-third  per 
cent  from  his  note,  can  purchase  as  much  with  the  remainder  as  he  could 
before.  Upon  whom,  then,  is  the  tax  most  burthensome  ?  Certainly 
not  upon  the  note  holder.  If,  then,  owing  to  the  nature  of  the  cur- 
rency itself,  we  can  pay  thi.i  high  tax  and  yet  impose  no  greater  bur- 
then upon  him  than  the  rest  of  the  community,  why  should  we  not  do 
it  If,  in  the  fair  cause  of  taxation,  thet?e  notes  can  be  reduced  to 
one-third  of  their  nominal  value,  without  bearing  unequally  upon  any, 
how  can  we  be  charged  with  repudiation  for  accomplishing  that  ben- 
eficial result  ? 

Admitting,  then,  that  the  proposed  legislation  is  not  unjust  to  the 
note- holder,  it  is  highly  to  be  commended  because  its  influence  would 
be  most  salutary  upon  public  credit  and  every  Giber  form  of  Govern- 
ment security.  The  value  of  the  land  would  become  greater,  because 
the  interest  would  be  worth  more  on  account  of  the  medium  in  which 
it  would  be  paid.  Public  credit  v  ould  be  stronger,  because  the  debt 
would  be  reduced  within  manageable  dimensions  and  its  increase  would 
be  less  on  account  of  the  sounder  currency  in  which  the  Govern- 
ment would  deal  But  it  may  be  said  why  not  reduce  the  face  of  the 
bond  as  well  as  that  of  the  note  ?  The  answer  is  obvious  ;  the  pur- 
chasing power  of  the  note  is  as great  after  the  operation  as  before;  but 
it  would  not  be  so  wi  h  the  bond,  as  bonds  are  not  currency.  Many  of. 
the  bonds,  too,  were  obtained  in  exchange  for  treasury  notes,  when 
they  bore  a  much  higher  value  than  at  present. 

If  the  scheme  recommended  by  the  Committee  on  Finance  should  be 
adopted,  we  should  start  with  an  interest-bearing  debt  of  about 
$400,000,000,  and  this  debt  would  consist  of  $298,000,1  >00  in  bonds, 
and  $102,000,000  in  interest-bearing  treasury  notes.  For  all  prac- 
tical purposes  the  public  debt  might  be  estimited  at  this  amount,  be- 
cause the  non-interest-bearing  treasury  notes  would  be  reduced  to  a 
gum  which  could  be  long  kept  afloat  by  the  demand  for  currency. 
That  is  to  eay,  if  the  States  will  leave  to  them,  as  they  ought,  the  en- 
tire field  of  circulation  In  this  condition  of  our  finances,  we  might 
well  hope  to  dispose  of  the  $500,0' »0,000  of  new  bonds,  which  are  to  be 
of  a  very  attractive  character,  upon  good  terms  for  Treasury  notes. 


11 

This  resource,  in  addition  to  the  taxes  which  it  is  proposed  to  lay, 
ought  to  maintain  the  Government  for  at  least  two  years,  at  the  rate 
of  lour  o-  live  hundred  millions  of  annual  expenditure.  Upon  this 
subject  the  undersigned  will  venture  no  prophecy,  as  the  elements  of 
calculation  are  so  unci  rtain.  But  the  proposed  measures  will  probably 
give  great  present  relief  in  the  existing  state  of  our  finaLces.  In 
the  opinion  of  the  undersigned,  it  is  indispensable  to  devote  the  taxes 
received  from  the  people  to  the  payment  of  interest  on  the  public  debt 
and  to  thp  expenses  of  the  Government.  To  attempt  to  pay  any  por- 
tion o  the  public  debt  by  taxation  now,  would  leave  the  Government 
to  be  supported  by  public  credit  alonp,  and  would  throw  so  much  of 
it  in  the  market  as  would  greatly  depreciate  our  best  securities.  If 
this  be  so.  it  will  be  found  impossible  to  bring  our  currency  within 
safe  limits  without  some  system  of  forced  reduction.  The  undersigned 
b  dive  that  the  plan  proposed  by  them  is  the  most  equal,  just  and  ef- 
fective of  stll  that  have  been  suggested.  But  there  are  some  evils 
which  are  necessarily  attendant  upon  them  all.  There  is  reason  to 
apprehend  difficulty  in  adjusting  contracts  made  in  1S63,  and  in  the 
early  part  of  186 4,  to  the  new  standard.  But  there  is  probably  less 
difficulty  of  th J3  sort  to  be  feared  from  the  plan  herein  proposed  than 
from  the  others,  because  the  old  notes  will  still  be  in  circulation  for 
some  months  to  come,  and  the  debtor  may  justly  claim  that  they  should 
be  received  at  the  rate  which  was  contemplated  when  the  contract  was 
made  The  sense  of  justice  and  public  opinion  which  have  already 
smoothed  down  many  difficulties  in  the  way  of  our  circulation,  will 
probably  prescribe  the  true  standard  by  which  such  contracts  will  be 
settled.  Indeed,  it  may  be  a  question  for  the  courts  to  decide  wheth- 
er, in  the  absence  of  an  express  stipulation  to  the  contrary,  the  values 
contemplated  in  the  contract^  are  not  to  be  measured  in  the  actual 
values  of  the  treasury  notes  at  the  time  when  it  was  made,  as  esti- 
mated in  the  currency  in  which  the  debts  are  to  be  paid. 

It  has  been  apprehended  by  some  that  so  large  a  tax  upon  the  note 
will  be  regarded  as  repudiation,  and  seriously  injure  our  credit  in 
public  opinion.  But  if  it  be  true  that  the  proposed  scheme  leaves  the 
note  as  valuable  in  the  hands  of  the  holder  after  its'  operation  as  be- 
fore, that,  in  any  aspect  of  the  case,  it  gives  him  more  than  he  gave 
for  the  note,  and  that,  viewed  as  a  tax  alone,  the  imposition  is  equal 
and  just,  then  there  is  no  man  of  fair  mind  who  would  discredit  a 
government  for  such  legislation.  It  cannot  be  denied  but  that  the  world 
is  often  carried  away  by  appearances.  The  plausible  is  sometimes 
the  worst  enemy  of  the  true.  But  in  this  case  our  people,  at  least, 
are  deeply  interested  in  ascertaining  the  truth,  and  there  is  not  much 
fear  but  that  in  the  the  end  they  will  find  it.  They  will  sustain  any 
scheme  of  finance  which  they  believe  to  be  just  and  which  promises 
the  means  t,  carry  on  the  war  for  some  time  to  come.  Of  course  no 
scheme  can  operate  successfully  in  the  face  of  serious  military  rever- 
ses, or  if  the  industrial  system  is  too  much  impoverished  in  the  effort 
to  place  men  in  the  field.  But  the  first  we  do  not  apprehend,  and  the 
latter  we  must  guard  against.  For  the  rest,  it  is  to  be  said  that  it  is 
the   people's  government,  the  people's  war  and   the  people's   credit. 


13 

Every  man  in  the  country  knows  that  we  must  sustain  the  last,  if  we 
would  either  maintain  the  Government  or  prosecute  the  war  success- 
fully. There  can  be  no  fear,  therefore,  that  the  people  will  fail  to 
sustain  the  currency  when  it  is  confined  within  fixed  limits,  and  it 
becomes  practicable  to  do  so,  for  all  will  feel  the  necessity  of  sup- 
porting it  as  strongly  as  we  do. 

B.  M.  T.  HUNTER, 
THOMAS  J.  SEMMES. 


